Chau Fa Chik Tso By Its Manager Chau Fuk Sze and Others v. Secretary for Justice

HCA 106/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 106 OF 2012

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Before : The Honourable Deputy High Court Judge Seagroatt in Chambers

Date of Hearing : 26 September 2012

Date of Handing Down of Judgment : 3 October 2012

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J U D G M E N T

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1.This action concerns a dispute over land owned by the Government of the HKSAR and leased to the plaintiffs, which dispute has been resurrected by the defendant (on behalf of the Government) despite the decision of the Court of Final Appeal, handed down on 8 December 2011, which confirmed the decision of the Court of Appeal of 14 February 2011, which had reversed the decision of the Judge at First Instance and found wholly in the plaintiffs’ favour.

2.I need state the nature of the original dispute in only short terms because the basic facts, at least, are not in dispute.

3.The 1^st plaintiff is the lessee of land identified as sections A and E of Lot 1212 in D.D.115 in Yuen Long.  The 2^nd to the 6^th plaintiffs are the lessees of section D of Lot 1212 in D.D.115.  The plaintiffs hold their land as lessees of the Government until 30 June 2047.

4.In July 1916 the Crown sold a Lot of land known as Lot 1212 in D.D.115 in Yuen Long.  At that stage the lease sold was for a term of 75 years (from 1 July 1898) with a right of renewal for 24 years (less 3 days).

5.The land was divided into five sections on 21 May 1924 and each section was sold by the then lessees to persons who included the plaintiffs’ predecessors in title.

6.Sometime between 1916 and 1924, and therefore at the latest by 1924, the plaintiffs’ predecessors had encroached upon the northern boundary and occupied the adjoining portion of Government land to the extent of about 6.67 acres.  It was used to extend the fishponds on the leased land.  Other lessees of other sections of the Lot and their predecessors had done the same.  The Judge at First Instance found that the Government did not become aware of the occupation of this additional land until sometime in the 1980’s.

7.The plaintiffs together with other lessees of other sections issued proceedings against the defendant (acting for the Government) to establish their right to the additional land, in December 2000 (HCA 10670/2000).  They claimed firstly that the northern boundary had been incorrectly drawn and should have encompassed the additional acreage; alternatively that they were entitled to include the additional land on a leasehold basis until 30 June 2047 by virtue of the common law doctrine of encroachment; or that their possession of the additional land had given them a possessory title which extinguished the Government’s title to the land; finally, that they were entitled to the land on the basis of proprietary estoppels. 

8.The Government counterclaimed that the additional land was Government land and that it was entitled to possession if the plaintiffs were held to be in adverse possession.  The plaintiffs (Respondents in the Court of Final Appeal) relied in that Court solely on the common law principle of encroachment as the basis of their title to the additional land, having abandoned the other grounds.  In setting out the above I have had direct recourse to the succinct paragraphs of the judgment of Ribeiro PJ.

9.The Court of Final Appeal’s findings, endorsing the judgment of the Court of Appeal, can positively be encapsulated as follows, applying the words of Lord Scott of Foscote NPJ at §127 of his judgment — “Conclusion”.

“— if 77 years of undisturbed possession had not sufficed to entitle the plaintiffs to retain that possession against the Government, the Limitation Ordinance would have failed to achieve the policy of limitation statutes to which I referred …

[There is] the long line of common law authority establishing that a tenant who goes into possession of adjoining land belonging to his landlord is presumed to do so for the purpose of enlarging his demised land and not for the purpose of acquiring an outright title against his landlord.”

The plaintiffs were then entitled to enjoy possession of the land encroached upon, on the same terms as the lease which they held in respect of the adjoining land.  And with that finality the matter should have rested there.

10.However it was not to be.  Now I need to go back a little in time to deal with events which occurred after the Government succeeded in the Court of First Instance and before the Court of Appeal reversed that decision.

11.That initial decision was handed down on 30 December 2009 whereby the Government succeeded in its claim for possession of the “Discrepant Area” as the land encroached upon by the plaintiffs was called.

12.The plaintiffs filed Notice of Appeal on 27 January 2010.  It was amended on 11 May 2010.

13.On 18 February 2010 the plaintiffs applied for a stay of execution pending the appeal to the Court of Appeal.  In response to that the Government filed an affirmation asserting that the Government would be losing rental at the rate of $384,000 per month.

14.The Judge ordered the payment of $100,000 per month into court from about 18 September 2010.  The plaintiffs did not make such a payment and the Government accordingly took possession of the land in question on or about 28 September, and then erected wire fencing around it.  In my view that was ill-advised.  It is alleged to have taken also steps to invite tenders for the leasing of the area.  By September 2010 the date of hearing of the appeal must have been known.  Its judgment was handed down on 14 February 2011.

15.Despite this judgment in favour of the plaintiffs the Government remained in possession and kept the wire fencing in situ and did not remove the latter and give up possession until 16 December 2011, one week after the decision of the Court of Final Appeal.  Accordingly the plaintiffs were deprived of the use and enjoyment of the disputed land from 28 September 2010 until 16 December 2011, a period of almost 15 months.  It is this which has precipitated this action by the plaintiffs to recover damages or mesne profits for that period.

16.The defendant’s Defence and Counterclaim is taken up with largely irrelevant matters one of which related to the construction of an access road completed on or about 11 October 1995, and another was simply a pointless repetition of paragraphs of the Statement of Claim relating to the application to stay execution.

17.However, the crux of the Government contention is that the plaintiffs consented to its occupation of the area of land as a tenant at will. This is just not tenable and seeks to impute an entirely illogical inference to the plaintiffs’ consent to a summons by the defendant for leave to appeal to the Court of Final Appeal.

18.The same lack of logic applies to the defendant’s contention that the plaintiffs did not complain about the Government’s occupation of the land, or demand that it deliver up vacant possession, or demand that it pay rent. One can readily imagine what the Government’s reaction would have been if the plaintiffs had taken that stance.  In taking possession knowing that the decision was being appealed, the Government had acted perhaps impetuously and imperiously — and quite unnecessarily.  It had nothing to lose by simply awaiting the outcome of the appeal.  By not acting with restraint and judgment it had exposed itself to a significant risk of having to pay compensation to its lessees.  If indeed it did invite tenders for the land and had then proceeded to grant leases in respect of it, it would have opened a veritable Pandora’s box of potential litigation and the waste of public money that that would have entailed.

19.Regrettably lack of logic seems to have permeated the desire to construct bricks from straw.  The plaintiffs’ solicitors letter of 8 December 2011 to the defendant following the judgment of Court of Final Appeal is pleaded (paragraph 10.2.3) as constituting a “notice to terminate the tenancy at will” allegedly and, impossibly, implied by the several independent instances pleaded in paragraph 10 of the defence.

20.Similarly there is no basis in my view for the allegations of the grant of a gratuitous licence to the Government or for the suggestion that the Government was a tenant at sufferance.  I will deal with these contentions, which do not reflect a realistic appraisal of the circumstances, a little later.

21.In the Counterclaim the Government seeks to raise matters which are alleged to constitute breaches of obligations under the lease.  Some are alleged to have existed since the 1980’s, others since 1995.  The Government does not rely upon any notices by it to any of the plaintiffs.  What is put forward by the Government does not sit comfortably as a proper counterclaim in the plaintiffs’ action which is brought to rectify the position in accordance with the judgment of the Court of Final Appeal.  If of relevance they should have appeared in the original proceedings so that the court could then view them in their proper context.  The Court of Final Appeal would then have had the opportunity of applying the law and arguments to the full picture.  At the very latest the Government could have raised the matter when it took possession of the disputed land following the judgment in the Court of First Instance.  Again, I will return to this later.

The Government’s occupation of the disputed land (otherwise called the Discrepant Area)

22.There are two periods to be considered.  The first is from the date of the obtaining of a Writ of Possession following the plaintiffs’ failure to meet the terms of the stay of execution, following the initial judgment in the defendant’s favour, by paying into court the sum of HK$100,000 per month, as mesne profits up to the date of the judgment of the Court of Appeal in the plaintiffs’ favour — i.e. from 28 September 2010 until 14 February 2011, a matter of about 4½ months.

23.The Government says that as a matter of law it was entitled to take possession.  It had the initial judgment in its favour and a Writ of Possession regularly issued out of the court.  That is a strong argument on the face of it, even though I regard the taking of possession and creating the fencing to exclude the plaintiffs was ill-advised in the circumstances.  An objective approach would have caused the Government to stay its hand for the time being.  However Mr Benjamin Chain for the plaintiff acknowledges that there is an arguable defence which the Government has put forward and I am not asked to resolve that.  [see Hillgate House Ltd v Expert Clothing Service and Sales Ltd [1987] 1 EGLR 65 per Sir Nicholas Browne‑Wilkinson V‑C.]

24.The second period is an entirely different matter.  It runs from the date of the judgment of the Court of Appeal up to the date of the judgment of the Court of Final Appeal which confirmed the decision of the former in favour of the plaintiffs i.e. from 14 February 2011 until 8 December 2011, a period of 9¾ months to which must be added one more week (since the Government did not vacate the land until 16 December 2011), making almost exactly 10 months.

25.The Government cannot rely on the same grounds it argues to justify the first period — it now had an adverse judgment, no legal basis for excluding the plaintiffs, and it should have vacated the land forthwith. Instead it has raised some artificial arguments of ‘tenant at sufferance’, ‘tenant at will’ and ‘gratuitous licence’ to justify its continued exclusion of the plaintiffs for that period.  Though the products in my view of a fertile imagination, searching around for a label with which to give it the cloak of legitimacy, it is quite unrealistic to view the exclusion of the Government’s lessees from land which had been held to be an extension of the land subject to the Government lease on the same terms to the lessees, as constituting, expressly or impliedly, a tenancy or licence granted to the landlord by its tenant.

26.An examination of the paragraphs in the Defence which put these forward shows the defects in the Government’s case in stark terms.  It is not until page 6 of the defence and paragraph 10 that we see what the Government seeks to construct as its defence.  It alleges that because the plaintiffs consented to the defendant’s application for leave to appeal the decision of the Court of Appeal to the Court of Final Appeal, and did not complain about the Government’s occupation of the disputed land and made no demand for vacant possession or for rent for the use and occupation of the land, it created a tenancy at will.  In fact it is pleaded that the plaintiffs made “a joint application with the defendant”.  It did no such thing.  It consented to the defendant’s application.  This is at the very least stretching legal terminology beyond breaking point.  Since the Government relied upon a judicial decision to take up occupation in the first instance it should have paid equal regard to the decision of the appellate court against it and vacated the premises.

27.The same alleged conduct on the part of the plaintiffs is pleaded as constituting a “gratuitous licence”.  This is equally untenable.  In fact Mr Mok for the defendant did not seek to place much reliance upon those pleaded bases for the Government’s illegal occupation of the land to the exclusion of the plaintiffs.  He placed more reliance upon the term “tenancy as sufferance” to describe the Government’s status as occupier.

28.In advancing the notion of the Government as “tenant on sufferance”, Mr Mok relies on Woodfall’s “Landlord and Tenant”.  However Woodfall’s consideration of this at paragraph 6.075 (in which paragraph he also refers to tenancy at will as an alternative result of certain circumstances) is not to be equated with the state of affairs in which the Government put itself i.e. the owner of land deemed to be leased by it to the plaintiffs to be held on same terms, as the land formally held on lease, in occupation of that land to the exclusion of the lessees.  The Government was by no stretch of terminology “one who, having entered under a lawful demise or title, wrongfully continues in possession after it has ended”.  It is much simpler than that — the Government was in wrongful occupation which excluded a lessee lawfully entitled.

The Defence — “Frivolous, vexatious and an abuse of process.”

29.In the light of my findings in relation to the Defence put forward concerning the second period of occupation, paragraphs 10.2, 10.3, 10.4 (paragraphs 6.5 and 12.1 are a sufficiently pleaded Defence in respect of the first period of occupation, and paragraph 12 is sufficient denial of the loss claimed) 12.2, and 12.3 (which is entirely superfluous being mere repetition) are struck out.  They are indeed frivolous and vexatious and an abuse of process.

The Counterclaim and Set‑off

30.Leave is sought to file the counterclaim and plead a set off.

31.Firstly it is necessary to examine exactly what this counterclaim seeks to set up; it is the first time that the Government’s contentions have seen the light of day.  No notices have been served setting out what breaches the plaintiffs are alleged to have committed, this despite the Government having taken possession of the disputed land in September 2010 and continued in possession until mid December 2011.

32.The effect of the contentions raised in paragraphs 17 and 19 of the proposed counterclaim is as follows:

The plaintiffs have from sometime in the 1980’s ceased to use some or all of the demised land and some or all of the encroached upon land (viz. the accretions which the Court of Appeal and the Court of Final Appeal held to be demised under the original leases by, at the latest, 1984) for agricultural purposes and left it to waste:

And: The plaintiffs have from sometime since 1995 (the year of completion of the access road) used some or all of the demised land and/or some or all of the encroached upon land for the business of car parking.

33.Accordingly says the Government the plaintiffs are in breach of Special Conditions 2 and 3 of their respective Government leases.  In respect of Condition 3 the terminology is “and a covenant to that effect shall be inserted in the Crown lease of the said Lot.”  Whether it was or not is unclear but for present purposes it does not matter.  The Government thereby seeks a declaration that it is entitled to compel the plaintiffs to comply with the conditions, and in default of compliance to take summary procedure for re-entry onto the land.  It also claims damages but the basis for this aspect is not identified.

34.It is patently clear in my view that the nature of the Government claim as set out is wholly different from that of the plaintiffs in their action arising out of the Government’s wrongful occupation of the encroached upon land which excluded the plaintiffs from it for the ten month period earlier identified.  Whereas the plaintiffs’ action is for damages for loss consequent upon wrongful exclusion from their demised land, the Government’s claim is to enforce compliance with the terms of the lease, alternatively possession of the land at some future date.  They are entirely different and distinct issues. That does not preclude the Government from seeking to counterclaim in this action.  If the Government seeks to advance what it puts forward as a potential cause of action, and no evidence in support of it has been filed but that matters not for these purposes since I am not assessing the merits of the potential claim itself, then it must do so, if advised, in a separate free‑standing action.  The plaintiffs’ action is simple, will involve little time and can soon be resolved.  That cannot apply to the cause of action outlined in the proposed counterclaim.

35.Mr Mok had argued that one aspect of the Government’s proposed claim involves a claim for damages and therefore a set-off is also sought.  That claim as pleaded is nebulous in the extreme and appears as a mere “makeweight” to the declarations sought in respect of the alleged breaches of conditions.  He says that the same potential range of evidence for quantification of loss is common to both.  I think that is highly unlikely.  At one stage of the original action by the plaintiff before the Judge at first instance, in an application to stay execution following his judgment in favour of the defendant, the Government adduced an affirmation asserting that the loss of the Government of “mesne profits” if it were to give up occupation of the disputed land would be HK$384,000 per month.  I have been unable to consider that affirmation, which may have been interesting but clearly the learned Judge was unimpressed and decided upon a figure of $100,000 monthly as the sum which the plaintiffs would have to pay into court to stave off execution.  In the event they were unable to do so.  It is not without significance that the defendant has not adopted any figure as indicative of loss, never mind the figure put forward in the affirmation or the figure fixed upon by the Judge as the “price” of the stay.

36.In exercising my discretion judgment under Order 15, rule 5 and Order 77, rule 6(2) and rule 7 against the Government I have also had regard to a number of other factors not the least of which is the likelihood of the plaintiff being able to raise arguments based upon the doctrine of laches or acquiescence, and waiver quite apart from any dispute on the alleged facts, or even the Limitation Ordinance.  Such a counterclaim would have the potential to swamp the plaintiffs’ claim in every respect. Mr Mok has helpfully directed my attention to the decision of Kaplan J in Paul Y Construction Co Ltd v The Attorney General of Hong Kong  (1992) 2 H.K.L.R. which does not help him on the facts but illustrates circumstances in which the discretion can be exercised.  I am not of course considering this case as an Order 14 or 14A application but under Order 18 rule 19.

37.A simple review of the chronology of proceedings lends force to my decision.  The plaintiffs’ original action (HCA 10670/2000) was, as the numbering indicates, commenced in 2000.  Because I have been unable to retrieve the court file I am not able to see how it proceeded.

38.However I was able to extract from Ribeiro PJ’s judgment in the Court of Final Appeal that the Government filed a counterclaim on 30 March 2001 for a declaration that the disputed land was Government land and claiming possession if the plaintiffs were to be found in adverse possession.  If the counterclaim now put forward has any substance or merit that was the time for it to form part of extant proceedings not now, twelve years later.  It would then have been considered in the overall context which occupied the minds of 9 (nine) senior judges.  This further underlines my earlier comment concerning the failure of the Government to take the points it now seeks to raise at any time after the judgment at first instance, during the period of occupation up to 16 December 2011 until 27 March 2012.  Some concern should be had by the Government and those advising it about the significant waste of public money in this litigation.

39.Accordingly I make the following orders:

(1) The Defence is struck out insofar as it relates to the second period of occupation which has been identified.  I have also identified the paragraphs concerned. 

(2) The issue relating to the first period of occupation and the assessment of damages for the second period of occupation are remitted to the Master.  The Plaintiffs are to file and serve within 30 days any affirmations/ affidavits in support of their claim and the Defendant is to file and serve within 30 days thereafter any affirmations/ affidavits in opposition. Beyond that period , no further affirmations/ affidavits are to be filed or served without the leave the Master.

(3) Leave to file a counterclaim and/or set off is refused. 

(4) The costs of both applications by summons are to be to the plaintiffs to be taxed if not agreed.

Mr Benjamin Chain, instructed by Y S Lau & Partners, for the 1^st to 6^th plaintiffs

Mr Mok Yeuk Chin, instructed by Department of Justice, for the defendant